Frank McCourt bought the Los Angeles Dodgers for $430 million in 2004. Then he chopped his team up, poured kerosene all over it, torched it, and then peed on it while the flames rose higher and higher and he still realized a 500% appreciation of his asset in less than eight years.

Bernie Madoff was inventing investment returns from whole cloth and even he didn’t have the guts to do that. Would have been far too ridiculous. Meth dealers don’t get that kind of return. Maybe the cash doesn’t flow in as much as some owners would like, but they are all sitting on crazy-appreciating assets. Owning a baseball team is a license to print money, even if you haven’t a clue of what you’re doing.

So I guess what I’m saying is, the next time you hear the owner of a major league baseball team cry poor, the next time you hear an owner say that they can’t sign that player everyone likes, the next time you hear an owner say that the taxpayers need to give him a publicly-funded ballpark or else the world will end, please remember the $2.15 billion sale of the Los Angeles Dodgers and kindly call b.s. on that noise.

I am not defending McCourt in any way….but…this is a pretty typical result of American big business today. A group will buy an asset, screw it up, extract huge amounts of profits from it as they run it into the ground, get huge tax breaks, government bailouts, layoff workers, and then sell their interests for obscene profits.

Big business is not about creating value or providing service, it is about manipulating the system to extract profits, extortion, and deception to create the appearance of value, not value itself. McCourt just had the misfortune to do his dirt in a business people are passionate about.

Agreed paperlions, and that is what is wrong with American big business today.

stex52 - Mar 28, 2012 at 8:37 AM

I am curious about the economics. I know L.A. is a bigger market than Houston, but 615 MM$ vs. 2.15 MMM$? Pretty stunning difference, because the Astros will have their own broadcast facility in another year. Is this a huge overpay, or is the potential cash flow difference really that big?

A large part of the value is in the land. Dodger Stadium, built via imminent domain, is privately owned. The land around it is part of the Stadium. Not sure who owns Minute Maid, but I do know it ends outside the gates of the Halliburton Cement Memorial Museum outside of left field.

Peter O’Malley sold the Dodgers to Fox because the LA city council wouldn’t allow him to build a football stadium within the Dodger Stadium grounds.With McCourt’s minority stake in a portion of the partnership, I have a feeling that noise will begin again.

Also, I think the potential cash flow really is that big. Los Angeles and Southern California has so many people. The main revenue is in TV now, and the potential for a TV deal with the Dodgers is WAY higher than the Astros could get.

The Astros price is also discounted since they chopped off some of the price in order to placate the move to the AL.

I don’t recall the details of the Astros sale as well, but I don’t remember a massive bidding process like this. The multiple LA groups could have bid the price up as well. Classic supply/demand.

stex52 - Mar 28, 2012 at 9:41 AM

Harris County Sports Authority, which is a public entity formed to represent the interests of taxpayers (Ha Ha) owns Minute Maid. Very good point. Private ownership of a facility like that would be a large financial plus.

aleskel - Mar 28, 2012 at 10:17 AM

The thing to remember when you see this rediculous price tags on teams is that, no matter the actual cash flow, sports teams are still basically vanity items, like works of art. Malcolm Gladwell wrote a pretty good piece about this:

So, when you look at the Forbes’ valuations, for example, they are strictly economic and tend to underestimate the vanity premium people are will to pay. That doesn’t totally explain how McCourt managed to make nearly $2 billion on in investment, but it’s a start.

I read that piece a while ago, and it makes a good deal of sense…if you have so much money that you’re literally wiping your butt with it. If this is the case here (at over $2 billion, it’s certainly a possibility), it could hint that the ownership really isn’t interested in having a good team and is instead interested in paying the vanity premium so that they can say “whoa, I’ve got a MAJOR LEAGUE BASEBALL team!”

Of course, Magic et al will probably run things, by default, better than McCourt.

The Houston metro area is the 6th largest in the country – http://en.wikipedia.org/wiki/Table_of_United_States_Metropolitan_Statistical_Areas. However, I’m guessing market rankings weigh income levels, and Houston has some poor indicators – higher poverty, lower median income. It’s economy is also heavily dependent on one industry sector (energy), and that relative lack of diversification may also be a factor.

It’s possible you were looking at the city itself. Houston is a very large (area-wise) city, so the city limits encompass more people, and so there is a smaller percentage of people in the metro area that live in the suburbs. This is why there are 2 million in Houston and 6 million total in the metro area. (66% in the suburbs).

By contrast, Washington, DC has 600,000 living in DC, but also has 6 million in the metro area. Houston’s large area makes its population seem artificially large. If one looked at a list and saw

Houston: 2,000,000
Washington, DC: 600,000

They would get the wrong idea about the real size of the market.

aleskel - Mar 28, 2012 at 11:05 AM

that’s a good point, kopy. Those market valuations could only be counting cities and not metro areas (which is a pretty common error).

stex52 - Mar 28, 2012 at 11:27 AM

I don’t think the numbers have fallen for Houston. They are fourht largest city, but 10th largest broadcast area. I have heard that for years. I just didn’t realize the numbers were so different from LA.

you guys are looking at populations not markets which is how tv contracts are determined. The Houston – Houston Metro population and the Houston-Houston Metro TV Markets are two very different things.

cur68 - Mar 28, 2012 at 8:44 AM

No doubt about it, it burns me that this ass-clown gets away rich. However, so long as he’s gone from pilfering the Dodgers, good riddance. He was plenty rich before, and had he not been an incompetent at running the team, would have got richer. He still squandered it into bankruptcy and got himself in enough legal hot water to boil an elephant. Couldn’t even get his pre-nup right, in fact.

I predict he’ll do it again: squander his good fortune into nothing, because what’s he learned? Sucking at running a cash cow like a pro-ball team makes you richer, so lets keep on with business as usual. Soon enough the other investors will buy him out and send him quietly on his way to play at being a big deal. Since he has the common business sense of a concussed duckling, he’ll be broke in 10 years.

The Angels just inked a $150M a year TV deal this offseason. I imagine the Dodgers rights are worth a bit more than that, because of history and whatnot. Once you factor in everything else, Magic and his group will be making plenty of money.

sdelmonte - Mar 28, 2012 at 9:00 AM

So, even though the Mets’ value dropped last season, I would bet that if there were a similar auction, they would pull even more than the Dodgers. Even if it would be hard to argue that the organization as currently constituted is worth it.

And while the Yankees are not likely to be for sale for a very long time to come, just imagine how much they would be worth. I have to say, this is a case where even Han Solo would have trouble imagining that much money.

I understand the value of brand name and all, and I agree that the Yankees would be like printing money. But all of these guys are borrowing the money these days to make these purchases. At some point you have to pay the bills, build the organizations and service the debt. And a lot of these organizations are not making that much money at all; the value equation is in the appreciation of the capital. But you can’t get the capital unless you sell or dilute your ownership. I am still curious where that line lies.

Yep, that was the instant I knew it was the point of no return: when I sat in the theater and saw that.

uyf1950 - Mar 28, 2012 at 9:54 AM

Remember the Yankees are not just the Yankees. The Yankees are actually owned by Yankee Global Enterprises and is a privately held company. Which also happens to include the YESNetwork among other things. Even being privately held and difficult to value Forbes at one point recently estimated their value at over $5,000,000,000 so you can imagine that if the Yankees were to be sold probably the whole kit and kaboodle would go including YES.

I think it’s safe to say it would boggle the mind at what the final selling price would be especially when you consider it’s a cash cow and a worldwide brand. You would have to think that even minority shares at that point would be beyond the means of the rich and famous.

“… the next time you hear the owner of a major league baseball team cry poor, the next time you hear an owner say that they can’t sign that player everyone likes, the next time you hear an owner say that the taxpayers need to give him a publicly-funded ballpark or else the world will end, please remember the $2.15 billion sale of the Los Angeles Dodgers and kindly call b.s. on that noise.”

One comment I’ve seen a lot is, “2 billion seems like a lot of money, but these guys are billionaires so they must know what they’re doing….”

Really ? Didn’t Fox virtually pay Frank McCourt to take the team 8 years ago ? Where were all these smart guys then, when the team could have been purchased by virtually anyone who could have ponied up a little cash?

Pardon me, but if someone asked me to invest with either Guggenheim or McCourt today, I’d have to go all in with Frank…..